Roux, A. and Zastawniak, T. (2006) A counter-example to an option pricing formula under transaction costs. Finance and Stochastics, 10 (4). pp. 575-578. ISSN 1432-1122
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Published Version: http://dx.doi.org/10.1007/s00780-006-0016-2
Abstract
In the paper by Melnikov and Petrachenko (Finance Stoch. 9: 141–149, 2005), a procedure is put forward for pricing and replicating an arbitrary European contingent claim in the binomial model with bid-ask spreads. We present a counter-example to show that the option pricing formula stated in that paper can in fact lead to arbitrage. This is related to the fact that under transaction costs a superreplicating strategy may be less expensive to set up than a strictly replicating one.
| Item Type: | Article |
|---|---|
| Academic Units: | The University of York > Mathematics (York) |
| Depositing User: | York RAE Import |
| Date Deposited: | 27 May 2009 09:53 |
| Last Modified: | 27 May 2009 09:53 |
| Published Version: | http://dx.doi.org/10.1007/s00780-006-0016-2 |
| Status: | Published |
| Publisher: | Springer Verlag (Germany) |
| Identification Number: | 10.1007/s00780-006-0016-2 |
| URI: | http://eprints.whiterose.ac.uk/id/eprint/6176 |
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